Stock-Based Compensation

12 Months Ended

Dec. 31, 2011

Stock-Based Compensation [Abstract]

STOCK-BASED COMPENSATION

NOTE 4—STOCK-BASED COMPENSATION

The Company granted 88,667 options outside of plans in September 2007 at an exercise price of $2.60 per share. The Company determined the estimated aggregate fair value of these options on the grant date to be $196,000, or approximately $2.21 per option. For the years ended December 31, 2011 and 2010, the Company recorded stock-based compensation expense of $0 and $34,000, respectively, for these options, which is included in general and administrative expense.

On November 13, 2007, the Board of Directors and a majority of the Company’s stockholders approved the SafeStitch Medical, Inc. 2007 Incentive Compensation Plan (the “2007 Plan”), which was amended on June 6, 2011 to increase the number of shares of Common Stock available for issuance thereunder from 2,000,000 to 3,000,000. Under the 2007 Plan, which is administered by the Compensation Committee, the Company may grant stock options, stock appreciation rights, restricted stock and/or deferred stock to employees, officers, directors, consultants and vendors up to an aggregate of 3,000,000 shares of Common Stock, which are fully reserved for future issuance. The exercise price of stock options or stock appreciation rights may not be less than the fair market value of the Common Stock at the date of grant and, within any twelve month period, no person may receive stock options or stock appreciation rights for more than one million shares of Common Stock. Additionally, no stock options or stock appreciation rights granted under the 2007 Plan may have a term exceeding ten years.

The Company granted 562,500 and 750,000 stock options under the 2007 Plan during the years ended December 31, 2011 and 2010, respectively. The options granted during 2011 were issued at an exercise price of $1.12 per share and had an estimated aggregate grant date fair value of $502,000. The options granted during 2010 were issued at exercise prices between $1.10 and $2.00 per share and had an estimated aggregate grant date fair value of $697,000. The weighted average grant date fair value of the options granted during 2011 and 2010 was $0.89 per share and $0.93 per share, respectively. At December 31, 2011, a total of 1,372,000 shares of Common Stock remained available for issuance under the 2007 Plan.

Total stock-based compensation recorded for the years ended December 31, 2011 and 2010 was $335,000 and $471,000, respectively, and is included in general and administrative expense. The stock-based compensation recorded for the year ended December 31, 2011 included a credit of $113,000 for a change in the forfeitures experience. The fair value of the Company’s stock option awards is expensed over the vesting life of the underlying stock options using the graded vesting method, with each tranche of vesting options valued separately. Expected volatility is based on the historical volatility of the Company’s stock. The risk-free interest rate for periods within the contractual life of the stock option award is based on the yield of U.S. Treasury bonds on the grant date with a maturity equal to the expected term of the stock option. The expected life of stock option awards is based upon the “simplified” method for “plain vanilla” options described in SEC Staff Accounting Bulletin No. 107, as amended by SEC Staff Accounting Bulletin No. 110. Forfeiture rates are based on management’s estimates. The fair value of each option granted are estimated on the date of their grant using the Black-Scholes option pricing model using the following assumptions.

	Year ended December 31, 2011	Year ended December 31, 2010
Expected volatility	76.91% – 102.63%	87.09% –108.28%
Expected dividend yield	0.00%	0.00%
Risk-free interest rate	2.25% – 3.25%	.88% – 3.11%
Expected life	5.5 – 10.0 years	4.0 – 7.0 years
Forfeiture rate	0% – 5%	0% – 5%

The following summarizes the Company’s stock option activity for the year ended December 31, 2011:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2010		1,334,667		$	1.41		5.74
Granted		562,500		$	1.12		9.20
Exercised		—			—
Canceled or expired		(269,000	)	$	1.19		4.88
Outstanding at December 31, 2011		1,628,167		$	1.35		6.26	$	—
Exercisable at December 31, 2011		864,917		$	1.50		4.98	$	—
Vested and expected to vest at December 31, 2011		1,585,098		$	1.35		6.23	$	—

68,000 of the 562,500 options granted during the year ended December 31, 2011, were vested as of December 31, 2011. At December 31, 2011, there was $242,000 of total unrecognized compensation cost related to non-vested employee and director share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 1.74 years.

No options were exercised during the years ended December 31, 2011 and 2010.

No tax benefits were attributed to the stock-based compensation expense because a valuation allowance was maintained for substantially all net deferred tax assets.